ASAP Regional Training on Epidemiological and Economic Tools for HIV/AIDS Strategic Planning S P
Cost Effectiveness Analysis: Methods and Limitations
S P
3Tunis, January 28, 2009
Presentation Objectives
• To describe cost-effectiveness analysis (methodology)
• To discuss limitations and assumptions underlying CEA
ASAP MENA Regional Training
S P
4Tunis, January 28, 2009
Introduction
• Provide a medical service to a patient if:– it has any benefit (clinical paradigm)– its incremental benefit outweighs its
incremental cost (economic paradigm)
ASAP MENA Regional Training
S P
5Tunis, January 28, 2009
“Opportunity Costs”• Opportunity costs: value of what you give up• With limited resources, providing service to one
patient reduces resources for others– Resources limited, since society is unwilling
to spend all of its money on health care– Health care will always be rationed
somehow, so better to consciously decide tradeoffs
ASAP MENA Regional Training
S P
7
What Is Cost-Effectiveness Analysis?
One type of Economic Evaluation that focuses on outcomes, e.g.,
- Lives- DALYs
Tunis, January 28, 2009 ASAP MENA Regional Training
S P
8
Economic Evaluation
Choice
Program A
ComparatorB Consequence B
Consequence A
Source: Drummond et al., 1997
Costs A
Costs B
Tunis, January 28, 2009 ASAP MENA Regional Training
S P
9
Economic Evaluation
Choice
Program A
ComparatorB
Consequence B
LIVES SAVED
Consequence A
LIVES SAVED
Source: Drummond et al., 1997
Costs A $
Costs B $
Tunis, January 28, 2009 ASAP MENA Regional Training
S P
10
Problem:
How to compare:- costs- consequences
Solution:Compare Cost-Effectiveness Ratios
Tunis, January 28, 2009 ASAP MENA Regional Training
S P
11
Cost $ / Effectiveness C/EA vs. C/EB
==> Pick Program A if C/EA < C/EB Pick Program B if C/EB < C/EA
Seems simple, but is that really the case?Tunis, January 28, 2009 ASAP MENA Regional Training
Cost-Effectiveness RatioNumerator: net use of health resourcesDenominator: net improvement in QALYs
S P
12
First Issue: Effectiveness
• Need same measure of Effectiveness, E.g.: – HIV infections averted– DALYs
• Can’t compare “apples” and “oranges”
Tunis, January 28, 2009 ASAP MENA Regional Training
S P
13
Second Issues: Costs
Many different kinds of costs
– Health care costs– Patient resources (time, $, other)– Costs in other sectors
Which ones to include?
Tunis, January 28, 2009 ASAP MENA Regional Training
S PHow Do We Measure Effectiveness?
• Lives saved• # of complications averted• Disability days averted• Quality adjusted life-years (QALYs)
– Weighs years of life by the quality of those years.
– Example: 1 year on hemodialysis = 0.6 years of life in perfect health.
Tunis, January 28, 2009 ASAP MENA Regional Training
S P
15
COSTS:• Health Care Costs
$1,000,000
• Patient/Family resources$5,000
• Costs in other sectors$50,000
CONSEQUENCES:• Lives Saved: 100
• Health care savings$250,000
• Savings in other sectors$20,000
• Savings in pat./fam. resources$12,000
Tunis, January 28, 2009 ASAP MENA Regional Training
Example 1
S P
16Tunis, January 28, 2009
Example 1: Cost-Effectiveness Ratio
Summary:1) C/E = 10,000 / life saved2) C/E = 7,500 / life saved3) C/E = 7,730 / life saved
Question: Which one is right?
ASAP MENA Regional Training
S P
17
Example 1: Cost-Effectiveness Ratio
1) Health Care Cost Only$1,000,000 / 100 lives C/E = $10,000/life saved
2) Health Care Resources Only==> Health care cost - health care savings($1,000,000-250,000)/100 lives
C/E= $7,500 / life saved
Tunis, January 28, 2009 ASAP MENA Regional Training
S P
18Tunis, January 28, 2009
Example 1: Cost-Effectiveness Ratio
3) All Resources
C/E = (All costs - All savings) / # lives saved
($1,000,000+5,000+50,000)- ($250,000+20,000+12,000) / 100 LS
= $7,730 / life saved
ASAP MENA Regional Training
S P
19Tunis, January 28, 2009
The “Right” C/E Ratio
• The “right” C/E ratio depends on your perspective and your objectives
• Economists argue for a societal perspective:==> Include all costs and consequences
C/E = $ 7,730 / life saved
ASAP MENA Regional Training
S P
20Tunis, January 28, 2009
The “Right” C/E
Net Costs / Effectiveness
Net costs = Costs - Resources Saved= C - S
C= C1+ C2 + C3 +...S= S1 + S2 + S3 +...
ASAP MENA Regional Training
S P
21
Determining Cost Effectiveness Requires ManyValue Judgments To Create A Single Measure Of Gain
• The value of diminishing different kinds of disability
• Disability versus death• Death at different ages• Current versus future gains (discount rate)• Attitude toward uncertainty (risk aversion)
Tunis, January 28, 2009 ASAP MENA Regional Training
S P
22Tunis, January 28, 2009
Programs Lasting Multiple Years
Differential Timing of Costs
Year Cost of Program A Cost of Program B($000s) ($000s)
1 5 152 10 103 15 4
“Total” 30 29
ASAP MENA Regional Training
S P
23Tunis, January 28, 2009
Programs Lasting Multiple Years
• Question: Is this comparison legitimate?• Answer: No!
• Question: What to do?• Answer: Convert future costs to
‘present’ costs
ASAP MENA Regional Training
S P
24Tunis, January 28, 2009
Value of a 1-year Investment
• Deposit $100 in the Bank @ 10% / year==> get $110 after 1 year
• How much is $100 in 1 year worth today?==> $91
• Deposit $100 in the Bank @ 5% / year==> get $105 after 1 year
• How much is $100 in 1 year worth today?==> $95
ASAP MENA Regional Training
S P
25
Multi-Year Programs
Conclusion:
– Timing matters– The interest rate matters
Tunis, January 28, 2009 ASAP MENA Regional Training
S P
26Tunis, January 28, 2009
Choice of Discount Rate Makes a Difference
r=0% r=1% r=5% r=10%Costs ($000s) ($000s) ($000s) ($000s)
PA 30 29.31 26.79 24.08(late costs)
PB 29 28.54 26.81 24.91(early costs)
ASAP MENA Regional Training
S P
27Tunis, January 28, 2009
Review
Important Issues in C/E Analysis:
• In/exclusion of costs and consequences• Difficulty estimating cost and
effectiveness • Timing of costs (and consequences) • Discount rate
ASAP MENA Regional Training
S P
28Tunis, January 28, 2009
Compute cost-effectiveness (CE) ratio
ASAP MENA Regional Training
Net costs (in monetary terms, e.g., dollars)
CE = Net health effects (in utility terms, e.g., DALYs or QALYs)
S P
29Tunis, January 28, 2009
Conceptual uses of CEA
• Objective: Develop more cost-effective programs
• Start with an existing or proposed program• Identify potential modifications that improve
effectiveness (e.g., more powerful intervention, improved patient adherence)
• Identify potential modifications that reduce costs (e.g., offer intervention only to selected clients, deliver faster, use lower cost personnel)
ASAP MENA Regional Training
S P
30Tunis, January 28, 2009
Efficacy ≠ Effectiveness
• Efficacy is how well treatment works in ideal circumstances
• Effectiveness is how well treatment works in real life
• Interventions may be less (more) when implemented at scale than in research/pilot settings, due to lower quality implementation (due to social change effects)
• C/E analysis always based on effectiveness
ASAP MENA Regional Training
S P
31Tunis, January 28, 2009
Cost-Minimization, Effectiveness & CEA
• Cost-Effective ≠ Cost-Minimizing– An intervention can be cost-effective even
if it increases costs• Effective ≠ Cost-Effective
– An intervention can provide a health benefit without giving the best health “value” for the $
– Example: HIV antigen testing of blood for transfusion is effective, but not cost-effective in this region
ASAP MENA Regional Training
S P
32Tunis, January 28, 2009
Decision Rules Based on Cost-Effectiveness
• Pay for a treatment if and only if it is found to be cost-effective– Primary concern: Money is wasted on a
therapy that is not cost-effective• Withhold payment for a treatment if and
only if it is shown not to be cost-effective– Primary concern: A cost-effective therapy is
excluded from coverage
ASAP MENA Regional Training
S P
33Tunis, January 28, 2009
Use of C/E Analysis for Policy
• C/E ratios only useful for policy if they are calculated in a consistent manner
• Fundamental problem in comparing C/E ratios to allocate resources has been the use of very different methods and definitions– e.g., misleading to compare cost per quality-
adjusted life year forIEC for MSM vs. harm reduction for IDU
when different costs are included and QALYs measured differently
ASAP MENA Regional Training
S P
34Tunis, January 28, 2009
C/E Ratio = Difference in Costs/Difference in Effectiveness
• Costs and effectiveness of what? Compared to what? What is the relevant alternative?
• With which population and over what time period is the C/E of the treatment measured?
• Whose costs and benefits?
• What type of costs should we measure?
• How do we measure effectiveness?• How are the intervention effects determined?
ASAP MENA Regional Training
S P
35Tunis, January 28, 2009
Important Assumptions to Remember
• Ignores equity issues• Ignores political concerns • Assumes people are rational (they’ll
demand what’s “good” for them)
ASAP MENA Regional Training
S P
36
Cost Effectiveness Possibilities
Costs
Effectiveness
I. Higher Costs but Higher effectivenessACCEPTABLE
II. Higher Costs but Lower EffectivenessAVOID
III. Lower Costs and Lower effectivenessACCEPTABLE
IV. Lower Costs andHigher EffectivenessBEST SITUATION
Tunis, January 28, 2009 ASAP MENA Regional Training
S P
Every point in this box
dominates point A
Every point in this box is dominated by point A
Increasing effectiveness
Incr
easi
ng c
ost A
More effective,more expensive
Less effective,less expensive
Cost Effectiveness Possibilities
S P
38Tunis, January 28, 2009
Conclusions
• Cost-effectiveness analysis can be a useful tool in allocating resources
• Quantitative application requires data about program effectiveness compared to the absence of program
• Conceptual uses are very powerful tools to plan alternative design
• C-E analysis is relatively simple in theory but difficult in practice
• Extreme care must be taken when confronting the methodological challenges inherent in CEA
• CEA does not consider equity issues and is based on objective utilitarianism
ASAP MENA Regional Training